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Judgment
S. Mohan, Offg. C.J.
In all these cases, the validity of section 269SS of the Income Tax Act, 1961, as it stood prior to April 1, 1989, is questioned before us.
It is argued by learned counsel for the petitioners that the aforesaid section imposes an obligation on the part of any person who, should he
accept a loan or deposit, over and above the value of Rs. 10,000 (as it stood then) otherwise than by an account payee cheque or account payee
bank draft, will be punishable u/s 276DD ; this does not even provide a reasonable cause; supposing it is a case of mere return of the amount due
on account of business, even then, if the assessee happens to get a sum of Rs. 20,000 or even if he had obtained a loan, for which he may have a
very valid explanation, all that is disregarded, straightway; a punishment is sought to be imposed; therefore, the said section is draconian in its
nature.
In answer to these arguments, learned counsel for the Department, Mrs. Nalini Chidambaram, would point out that the grievance of the
petitioners is only imaginary because if one uses section 278AA, he uses the non-obstante clause, therefore, under the same, reasonable cause will
have to be shown; even otherwise the power to prosecute has been conferred upon the highest functionary of the Income Tax Department u/s 279;
these are sufficient safeguards and one cannot say that the provision, namely, section 269SS, is draconian in nature or arbitrary in character.
In order to appreciate the respective contentions, we shall extract sections 269SS and 276DD. Section 269SS reads thus :
No person shall, after June 30, 1984, take or accept from any other person (hereafter in this section referred to as the depositor), any loan or
deposit otherwise than by an account payee cheque or account payee bank draft if, -
(a) the amount of such loan or deposit or the aggregate amount of such loan and deposit; or
(b) on the date of taking or accepting such loan or deposit, any loan or deposit taken or accepted earlier by such person from the depositor is
remaining unpaid (whether repayment has fallen due or not), the amount or the aggregate amount remaining unpaid; or
(c) the amount or the aggregate amount referred to in clause (a) together with the amount or the aggregate amount referred to in clause (b),
is ten thousand rupees or more :
Provided that the provisions of this section shall not apply to any loan or deposit taken or accepted from, or any loan or deposit taken or accepted
by, -
(a) Government;
(b) any banking company, post office savings bank or co-operative bank;
(c) any corporation established by a Central, State or Provincial Act;
(d) any Government company as defined in section 617 of the Companies Act, 1965 (1 of 1956);
(e) such other institution, association or body or class of institutions, associations or bodies which the Central Government may, for reasons to be
recorded in writing, notify in this behalf in the Official Gazette :
Provided further that the provisions of this section shall not apply to any loan or deposit where the person from whom the loan or deposit is taken
or accepted and the person by whom the loan or deposit is taken or accepted are both having agricultural income and neither them has any income
chargeable to tax under this Act.
Explanation. - For the purpose of this section, -
(i) ''banking company'' means a company to which the Banking Regulation Act, 1949 (10 of 1949), applies and includes any bank or banking
institution referred to in section 51 of that Act;
(ii) ''co-operative bank'' shall have the meaning assigned to it in Part V of the Banking Regulation Act, 1949 (10 of 1949);
(iii) ''loan or deposit'' means loan or deposit of money.
Section 276DD reads thus :
If a person takes or accepts any loan or deposit in contravention of the provisions of section 269SS, he shall be punishable with imprisonment for
a term which may extend to two years and shall also be liable to find equal to the amount of such loan or deposit.
By a reading of the above, it is clear that the failure to follow the procedure as stipulated in section 269SS would attract section 276DD. But if
the matter had stood there, certainly there is something to be said in favour of the petitioners. But there are other sections which require to be taken
note of, namely, section 278AA which reads thus :
Notwithstanding anything contained in the provisions of section 276A, section 276AB, section 276DD or section 276E, no person shall be
punishable for any failure referred to in the said provisions if he proves that there was reasonable cause for such failure.
Yet another section is section 279 which reads thus :
(1) A person shall not be proceeded against for an offence u/s 275A, section 276A, section 276AA, section 276B, section 276C, section
276CC, section 276D, section 276DD, section 276E, section 277, section 278 or section 278A except at instance of the Chief Commissioner or
Commissioner.
(1A) A person shall not be proceeded against for an offence u/s 276C or section 277 in relation to the assessment for an assessment year in
respect of which the penalty imposed or imposable on him under clause (iii) of sub-section (1) of section 271 has been reduced or waived by an
order u/s 273A.
(2) The Chief Commissioner or Commissioner may either before or after the institution of proceedings compound any such offence.
(3) Where any proceeding has been taken against any person under sub-section (1), any statement made or account or other document produced
by such person before any of the Income Tax authorities specified in clauses (a) to (g) of section 116 shall not be inadmissible as evidence for the
purpose of such proceedings merely on the ground that such statement was made or such account or other document was produced in the belief
that the penalty imposable would be reduced or waived u/s 273A or that the offence in respect of which such proceeding was taken would be
compounded.
By a reading of the above two sections, it is clear that because of use of the non obstinate clause u/s 278AA which takes within it section
276DD as well, reasonable cause could be shown by the assessee before imposing punishment for violations u/s 269SS and proceeding to punish
him u/s 276DD. In other words, the assessee will have to show that there was a reasonable cause for such failure. Only then the question of
prosecution will arise. This is undoubtedly a sufficient safeguard. Yet another safeguard, as we are able to see from section 279, which we have
already extracted, is that the prosecution is to be at the instance of the Chief Commissioner or the Commissioner. Where, therefore, the highest
functionary in the Income Tax Department is entrusted with the power, that itself takes away the sting of arbitrariness.
Besides section 269SS, the petitioners have also challenged the validity of section 44AB
It may be pointed out that we have already upheld the validity of section 44AB in Writ Petition No. 3205 of 1985 by order dated August 29,
1989.
As a corollary, for the reasons stated above, we hold that section 269SS is also valid and, accordingly, we dismiss all these writ petitions.
However, there will be no order as to costs.